The cost of oil production in Russia is vital to the country's economy. The state budget is filled through the sale of hydrocarbons. The difference between cost and market price determines the profits of oil exporters. At first glance, calculating the total cost of producing black gold seems like a simple task. But the question of the cost of oil production in Russia does not find a clear answer. The difficulty lies in the following: it is necessary to justify which expenses should be included in this amount.
Pricing
Typically, the price of oil refers to quotes of the respective futures contracts. During trading on the world's largest exchanges, the price of black gold is formed, which serves as a guide for all sellers and buyers of hydrocarbons. The unit of measurement for this product is a barrel (158 liters).
Qualitative indicators of oil vary depending on the field where it is produced. Different varieties differ in density and sulfur content. The geographical location of oil deposits on the planet and the existence of a large number of its brands make it impossible to create a global black gold market.
The price, which is now considered to be a reliable guideline, is formed on the Intercontinental Futures Exchange in London. Organization of bidding on it is open and transparent. However, it is worth noting that only about 1% of the world oil turnover falls on this exchange platform. The remaining volume goes from sellers to buyers by concluding non-market contracts.
Price Markers
Varieties of oil, futures contracts for which are traded on the world's largest exchanges, are basic or reference to other brands of black gold. Their quotes serve as the basis for determining the global price. In the USA, Texas-based light oil called WTI is a marker grade. It contains about 0.24% sulfur. Futures on WTI is traded on the New York Mercantile Exchange. On the North American continent, the quotes for this contract are the most important indicator of the energy market.
In Europe, the well-known Brent mixture is used as a marker variety. It consists of several types of oil produced by the Norwegian and British companies in the North Sea. The density of the mixture Brent surpasses the American brand WTI. Today, prices for 70% of all grades of oil in the world are calculated based on Brent futures on the London Stock Exchange. This brand has become a reference in the hydrocarbon market due to its high liquidity and the presence of reliable suppliers.
Cost price
Oil producers bear the costs associated with the extraction, processing and transportation of black gold. The sum of all these costs is called cost. It is calculated in monetary terms per unit of measure of the final product. For example, the cost of oil production in Russia in 2014, according to Rosstat, averaged $ 11 per barrel. It is important to note that there are many components that can be considered in this figure. In addition to the costs of extraction and processing, manufacturers must pay taxes and invest in the exploration of new deposits. Valuation methods may vary. For this reason, official information on the cost of oil production in Russia in 2014 sometimes differs from the data of international analytical agencies. According to experts of the influential Morgan Stanley bank , the break-even point in the specified period was at $ 50. Compared with the information published by Rosstat on the cost of oil production in Russia in 2014, this figure can be bewildering if you do not take into account the high level of taxation in this industry.
Vibrations
As you know, hydrocarbon prices are extremely volatile. However, the total costs of their extraction are not subject to significant fluctuations. The reason for the change in the cost of oil production in Russia over the years is mainly related to the general inflation rate. Worldwide, commodities and their processing operations tend to rise in price.
Statistics confirm the comparative stability of the average level of expenditures on energy production. The cost of oil production in Russia in 2013 at a number of fields amounted to $ 14 per barrel. Soon, the turmoil in the hydrocarbon market and the catastrophic drop in black gold quotes did not cause serious changes in the amount of producer costs.
During the period of stably high energy prices, the level of financial investments necessary for their extraction and transportation did not differ from the usual one. The cost of oil production in Russia in 2012 kept in the usual range. It should be noted that at that time the mark of $ 100 per barrel seemed indestructible. At a constant level of expenses, companies received high profits from the sale of hydrocarbons. In contrast to the sharp jumps in stock quotes, the schedule for the cost of oil production in Russia presents no surprises.
Factors
The cost of energy production is largely dependent on the characteristics of the field. An important role is played by its geographical location, climatic conditions and the depth of black gold. The cheapest cost is oil extraction in the Gulf countries. An example is Saudi Arabia, where the cost of a barrel is estimated at $ 8. Deposits there are located on the continental shelf. The shallow depth of their occurrence facilitates prey. The proximity of fields with large seaports reduces transportation costs.
Due to climatic conditions, the cost of oil production in Russia is higher than in the Gulf countries. Despite the great distances, the well-developed infrastructure and pipeline network solves the delivery problem. In Russia, the cost of oil production per barrel differs markedly at different fields. On old and long-developed, this figure reaches $ 28. The reason for such relatively high costs is that the reserves of black gold there are hard to recover. At new fields, the cost of oil production in Russia is $ 16 per barrel.
Norway
A significant part of the hydrocarbon deposits in this country is located in areas remote from existing infrastructure and potential consumers. This leads to higher cost of well operation and oil delivery. Deposits in this region began to be developed relatively recently, and the hydrocarbon reserves in them are still large. The cost of a barrel of oil in Norway is $ 21.
Nigeria
This country is the largest energy exporter in Africa. However, frequent cases of sabotage and oil theft hinder the development of the extractive industry. For security reasons, Nigeria currently has to develop new offshore fields. These projects reduce the risk to mining companies in a socially and politically unstable country, but inevitably increase production costs. The average cost of a barrel in Nigeria is $ 29.
Canada
The main increase in energy production in this country is accounted for by the unconventional type of oil extracted from tar sands. Their deposits are located in the northern forests of Alberta. The development of such deposits requires record high investments and takes a long time. Due to the remote location of the deposits and the insufficient number of pipelines, transportation costs are among the largest in the industry. Thanks to tar sands, Canada ranks third in the world in terms of hydrocarbon reserves after Saudi Arabia and Venezuela. The main disadvantage of unconventional oil is that its production requires a huge amount of fresh water. In the foreseeable future, energy sources derived from tar sands will be able to satisfy only a few percent of global demand. The cost of a barrel in Canada is $ 27.
Iran
The Islamic Republic is currently seeking to revive its oil industry, which has been under pressure from international economic sanctions for three decades. After the resumption of export of Iranian black gold to the countries of the European Union, its daily production jumped by 300 thousand barrels. The main advantage of the Islamic Republic is the extremely low cost of oil production. It is about $ 9 per barrel.
Iraq
This country ranks second in oil production among OPEC member states. Theoretically, the production of hydrocarbons in Iraq is one of the cheapest in the world. The cost of a barrel there is estimated at $ 10. But there are difficulties associated with the political situation and security issues that significantly increase the real costs of mining companies. The country is fighting against armed groups that have seized part of its oil fields. Despite this, Iraq manages to increase its energy production.